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Variation Orders – Types, Permission and Consequences
‫التغييرية‬ ‫األوامر‬
-
‫التعاقدية‬ ‫وآثارها‬ ‫وحدودها‬ ‫أنواعها‬
2
Mohamed Maged Hegazy
AssociatePlanningDirector,RedSeaGlobal
• Master in Construction Law – Salford University, UK
• Master of Business Administration – UoPeople, US
• B.Sc. Civil Engineering – Ain Shams University, Egypt
• Consultant – Saudi Council of Engineers
• MRICS, Chartered Project Management Surveyor – RICS
• CCP, Certified Cost Professional – AACE
• PMP, Project Management Professional – PMI
• P3O, Portfolio, Programme and Projects Offices – AXELOS, UK
• FIDIC Contracts Consultant, AIA (Brussels) Fellow
• Author of 50 Planning fundamentals & Fundamentals of Construction Contracts
• Experience more than 21 years in mega-projects (Buildings, Infrastructure &
Roads)
@magedkom /in/magedkom ArabPlanners @profplanner
Content
1. Why Changes Occur in Construction
2. Other Differences in Construction Contracts
3. Change Mechanisms in Standard Forms
4. Unilateral vs Bilateral VO Procedures
5. Types of Changes
6. Permitted Unilateral Changes
7. New Rate Calculation
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Simple Form of Purchase Contract
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Contract formation essentials:
- - Offer Acceptance
- Legal Purpose
- Competent Parties
- Consideration
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Nature of Construction Contracts
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Time factor: Changes occur because the final product doesn’t exist during contracting
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Other Differences in Construction Contracts
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Changes/VO mechanism – Extending duration mechanism – Payment mechanism
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Documents of Construction Contracts
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Roles & responsibilities
Duties & Authorities
Commencement date & time frames
Risk allocation
Change management mechanisms
Performance measurements
Plain language & visual aids
Rights & liabilities
Records & communication
Closing & taking over
Payment & indemnities
Procedural rules & priorities
Governing Law
General Conditions: - Price (Offer &
Acceptance)
- Scope (Specification,
Drawings, Schedules, ….).
Particular Conditions:
- Sections
- Time for Completion,
DNP, Delay
Damages….etc.
T19
FIDIC Red Book 2017
1.5 Priority of Documents
The documents forming the Contract are to be taken as mutually explanatory of one
another. If there is any conflict, ambiguity or discrepancy, the priority of the documents
shall be in accordance with the following sequence:
(a) the Contract Agreement; (b) the Letter of Acceptance; (c) the Letter of Tender;
(d) the Particular Conditions Part A – Contract Data;
(e) the Particular Conditions Part B – Special Provisions;
(f) these General Conditions; (g) the Specification; (h) the Drawings; (i) the Schedules;
(j) the JV Undertaking (if the Contractor is a JV); and
(k) any other documents forming part of the Contract.
If a Party finds an ambiguity or discrepancy in the documents, that Party
shall promptly give a Notice to the Engineer, describing the ambiguity or
discrepancy. After receiving such Notice, or if the Engineer finds an ambiguity
or discrepancy in the documents, the Engineer shall issue the necessary
clarification or instruction.
CA can issue instructions
with reference to clauses
2.15/ 2.16/ 2.17 in case of
discrepancies.
JCT 2016
PM may give instruction
under clause 17.1 in case
of ambiguity or
inconsistency.
NEC4 ECC
Example of Standard Forms
Documents and Precedence
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What’s the Right to Change/Vary?
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It’s intrusion into and infringement by Employer of contractor’s right unless agreed.
Change Mechanisms in Standard Forms / Variation and Claims
Variation and Claims are managed
under Clauses 13 & 20. However, the
clauses that entitle to EOT are
included in Sub-Clause 8.5 EOT for
Completion.
FIDIC
The claims for time are under
Relevant Events (2.29) while the
claims for cost are under Relevant
Matters (4.22). However, the adverse
weather is included only as a relevant
event, not relevant matter.
JCT
EW (clause 15) is a tool that parties
use to notify the potential changes/
CEs.
NEC
The Valuation is under Sub-Clause
13.3 and the Engineer determination is
under Sub-Clause 3.7 Agreement or
Determination.
The valuation rules depend on whether
measurable work (5.6) or contractor’s
designed portion (5.8), otherwise
dayworks apply (5.7).
Claims for cost or/and time are under
compensation events (section 6). The
Contractor submits quotations which
comprise changes to prices and/or
alterations to the accepted programme
(62.2), then PM replies (62.3).
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Request for
Proposal
13.3.3
Contractor’s
Proposal
13.2
DAAB
21.4
FIDIC Phases of Variation/ Claim
Engineer’s
Instruction
13.3.1
Parties’ Agreement or
Engineer’s Determination
3.7 – 12.3
Arbitration
21.5-21.6
Claim
20
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Relevant Event
Relevant Matter
JCT Types of Events
2.27 Notice by Contractor of delay to progress
2.28 Fixing Completion Date
1. If, .. on receiving a notice .. under clause 2.27: :
.1 any of the events which are stated to be a cause of delay is a
Relevant Event; and
.2 completion of the Works or of any Section is likely to be
delayed thereby beyond the relevant Completion Date,
then, .. Architect/Contract Administrator shall give an extension
of time by fixing such later date as the Completion Date for the
Works or Section as he then estimates to be fair and reasonable.
2.29 Relevant Events
Loss and Expense
4.20 to 4.24
4.22 Relevant Matters
The following are the Relevant Matters:
.1 Variations (..including any .. matters or instructions which under
these Conditions are to be treated as a Variation);
.2 Architect/Contract Administrator’s instructions: …
.4 any impediment, prevention or default, whether by act or
omission, by the Employer, the Architect/Contract Administrator, the
Quantity Surveyor or any Employer’s Person,..
4.23 Amounts ascertained – addition to Contract Sum
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NEC
Flowchart of
Compensation
Events
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General Conditions of the Contract for Construction
- Tenderers
- Sections - Clauses
- Employer / Client - Architect/CA / PM
- Practical Completion/ Defects date
- Programme
- Relevant Matter / Compensation Event
- Senior Rep.s / Mediation – Adjudication/DAB – Tribunal
UK Forms (JCT & NEC)
- Bidders
- Articles
- Owner - Architect
- Substantial Completion/ Final Completion
- Construction Schedule
- Change Order
- Initial Decision - Mediation – Arbitration (AAA)
American Form - AIA
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NEC4 Engineering and Construction Contract (ECC)
JCT- Standard Building Contract Wo Quant. (SBC/XQ)
Two commonly occurring categories of scope
changes on construction projects are either:
changes directed by the owner, or changes
identified by the contractor as a result of an
action or inaction of the owner, also known as
constructive changes (causes claims).
An owner-directed change may ultimately
become a constructive change (claim) if the
contractor believes it will be impacted by the
directed change.
Change Order
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Unilateral vs Bilateral VO Procedures
Unilateral VO is instructed by Employer and
the Contractor must proceed as per the
contract mechanism.
Bilateral VOs where supplemental mutual
agreements between the parties are
required to increase or decrease the work
agreed upon.
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Unilateral Example (FIDIC)
13.3 Variation Procedure
… Variations shall be initiated by the Engineer …either of the following procedures:
13.3.1 Variation by Instruction
… with Sub-Clause 3.5 [Engineer’s Instructions]. The Contractor shall proceed with
execution of the Variation and shall within 28 days (or other period proposed by the
Contractor and agreed by the Engineer) …, submit to the Engineer detailed particulars…
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Types of Changes
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Omission, Addition and Substitution
FIDIC
13.1 Right to Vary
Each Variation may include:
(i) changes to the quantities ..; (ii) changes to the quality ..;
(iii) changes to the levels, .. and/or dimensions …;
(iv) ..omission .., unless it is to be carried out by others..;
(v) ..additional work, …; or (vi) changes to the sequence ...
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Permitted Unilateral Changes
Blue Circle Industries Plc v Holland Dredging Co (UK) Ltd (1987)
Is it a permitted unilateral change/ omission?
- B invited H to tender for dredging works at Larne Lough on the terms of the ICE conditions 5th Edition.
- In discussions, it was reached to use the dredged material to form an island.
- H failed to form the island properly- it merely broke the surface at low water.
- B commenced proceedings claiming damages for negligence, breach of
collateral warranty and misrepresentation.
- The court held that the work is wholly outside the original scope (Not
similar character and nature), it could not be ordered as a variation and it
must be a separate agreement.
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New Rate Calculation – FIDIC Example
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Each new rate or price shall be derived from any relevant rates or prices
specified in the Bill of Quantities or other Schedule, with reasonable
adjustments to take account of the matters described in sub-paragraph (a), (b)
and/or (c), as applicable. If no specified rates or prices are relevant for the
derivation of a new rate or price, it shall be derived from the reasonable Cost
of executing the work, together with the applicable percentage for profit
A new rate or price shall be appropriate for an item of work if:
(a) the item is not identified …, or is not executed under similar conditions, …;
(b) (i) the measured quantity of the item is changed by …%; and/or
(c) the work is instructed under Clause 13 [Variations and Adjustments] and sub-paragraph (a) or (b) above applies.
Closing Note
1. Why Changes Occur in Construction
2. Other Differences in Construction Contracts
3. Change Mechanisms in Standard Forms
4. Unilateral vs Bilateral VO Procedures
5. Types of Changes
6. Permitted Unilateral Changes
7. New Rate Calculation
@magedkom /in/magedkom ArabPlanners @profplanner
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Recap
Thank You
Don’t Hesitate to contact….
M.Maged Hegazy
mm.hegazy@ppmconference.net
mobile : 00966-580264968

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Variation Orders – Types, Permission and Consequences

  • 1. Variation Orders – Types, Permission and Consequences ‫التغييرية‬ ‫األوامر‬ - ‫التعاقدية‬ ‫وآثارها‬ ‫وحدودها‬ ‫أنواعها‬
  • 2. 2 Mohamed Maged Hegazy AssociatePlanningDirector,RedSeaGlobal • Master in Construction Law – Salford University, UK • Master of Business Administration – UoPeople, US • B.Sc. Civil Engineering – Ain Shams University, Egypt • Consultant – Saudi Council of Engineers • MRICS, Chartered Project Management Surveyor – RICS • CCP, Certified Cost Professional – AACE • PMP, Project Management Professional – PMI • P3O, Portfolio, Programme and Projects Offices – AXELOS, UK • FIDIC Contracts Consultant, AIA (Brussels) Fellow • Author of 50 Planning fundamentals & Fundamentals of Construction Contracts • Experience more than 21 years in mega-projects (Buildings, Infrastructure & Roads)
  • 3. @magedkom /in/magedkom ArabPlanners @profplanner Content 1. Why Changes Occur in Construction 2. Other Differences in Construction Contracts 3. Change Mechanisms in Standard Forms 4. Unilateral vs Bilateral VO Procedures 5. Types of Changes 6. Permitted Unilateral Changes 7. New Rate Calculation Facebook Icon - Free Download, PNG and Vector Youtube Logo Icon, Youtube Icon, Youtube Vector, Youtube PNG and ... Twitter twitter button twitter logo icon - Popular Social Media ...
  • 4. @magedkom /in/magedkom ArabPlanners @profplanner Simple Form of Purchase Contract Facebook Icon - Free Download, PNG and Vector Youtube Logo Icon, Youtube Icon, Youtube Vector, Youtube PNG and ... Twitter twitter button twitter logo icon - Popular Social Media ... Contract formation essentials: - - Offer Acceptance - Legal Purpose - Competent Parties - Consideration
  • 5. @magedkom /in/magedkom ArabPlanners @profplanner Nature of Construction Contracts Facebook Icon - Free Download, PNG and Vector Youtube Logo Icon, Youtube Icon, Youtube Vector, Youtube PNG and ... Twitter twitter button twitter logo icon - Popular Social Media ... Time factor: Changes occur because the final product doesn’t exist during contracting
  • 6. @magedkom /in/magedkom ArabPlanners @profplanner Other Differences in Construction Contracts Facebook Icon - Free Download, PNG and Vector Youtube Logo Icon, Youtube Icon, Youtube Vector, Youtube PNG and ... Twitter twitter button twitter logo icon - Popular Social Media ... Changes/VO mechanism – Extending duration mechanism – Payment mechanism
  • 7. @magedkom /in/magedkom ArabPlanners @profplanner Documents of Construction Contracts Facebook Icon - Free Download, PNG and Vector Youtube Logo Icon, Youtube Icon, Youtube Vector, Youtube PNG and ... Twitter twitter button twitter logo icon - Popular Social Media ... Roles & responsibilities Duties & Authorities Commencement date & time frames Risk allocation Change management mechanisms Performance measurements Plain language & visual aids Rights & liabilities Records & communication Closing & taking over Payment & indemnities Procedural rules & priorities Governing Law General Conditions: - Price (Offer & Acceptance) - Scope (Specification, Drawings, Schedules, ….). Particular Conditions: - Sections - Time for Completion, DNP, Delay Damages….etc.
  • 8. T19 FIDIC Red Book 2017 1.5 Priority of Documents The documents forming the Contract are to be taken as mutually explanatory of one another. If there is any conflict, ambiguity or discrepancy, the priority of the documents shall be in accordance with the following sequence: (a) the Contract Agreement; (b) the Letter of Acceptance; (c) the Letter of Tender; (d) the Particular Conditions Part A – Contract Data; (e) the Particular Conditions Part B – Special Provisions; (f) these General Conditions; (g) the Specification; (h) the Drawings; (i) the Schedules; (j) the JV Undertaking (if the Contractor is a JV); and (k) any other documents forming part of the Contract. If a Party finds an ambiguity or discrepancy in the documents, that Party shall promptly give a Notice to the Engineer, describing the ambiguity or discrepancy. After receiving such Notice, or if the Engineer finds an ambiguity or discrepancy in the documents, the Engineer shall issue the necessary clarification or instruction. CA can issue instructions with reference to clauses 2.15/ 2.16/ 2.17 in case of discrepancies. JCT 2016 PM may give instruction under clause 17.1 in case of ambiguity or inconsistency. NEC4 ECC Example of Standard Forms Documents and Precedence ppmconference.net @magedkom ArabPlanners @profplanner Internet, site, web, website icon Facebook Icon - Free Download, PNG and Vector Youtube Logo Icon, Youtube Icon, Youtube Vector, Youtube PNG and ... Twitter twitter button twitter logo icon - Popular Social Media ...
  • 9. @magedkom /in/magedkom ArabPlanners @profplanner What’s the Right to Change/Vary? Facebook Icon - Free Download, PNG and Vector Youtube Logo Icon, Youtube Icon, Youtube Vector, Youtube PNG and ... Twitter twitter button twitter logo icon - Popular Social Media ... It’s intrusion into and infringement by Employer of contractor’s right unless agreed.
  • 10. Change Mechanisms in Standard Forms / Variation and Claims Variation and Claims are managed under Clauses 13 & 20. However, the clauses that entitle to EOT are included in Sub-Clause 8.5 EOT for Completion. FIDIC The claims for time are under Relevant Events (2.29) while the claims for cost are under Relevant Matters (4.22). However, the adverse weather is included only as a relevant event, not relevant matter. JCT EW (clause 15) is a tool that parties use to notify the potential changes/ CEs. NEC The Valuation is under Sub-Clause 13.3 and the Engineer determination is under Sub-Clause 3.7 Agreement or Determination. The valuation rules depend on whether measurable work (5.6) or contractor’s designed portion (5.8), otherwise dayworks apply (5.7). Claims for cost or/and time are under compensation events (section 6). The Contractor submits quotations which comprise changes to prices and/or alterations to the accepted programme (62.2), then PM replies (62.3). @magedkom /in/magedkom ArabPlanners @profplanner Facebook Icon - Free Download, PNG and Vector Youtube Logo Icon, Youtube Icon, Youtube Vector, Youtube PNG and ... Twitter twitter button twitter logo icon - Popular Social Media ...
  • 11. Request for Proposal 13.3.3 Contractor’s Proposal 13.2 DAAB 21.4 FIDIC Phases of Variation/ Claim Engineer’s Instruction 13.3.1 Parties’ Agreement or Engineer’s Determination 3.7 – 12.3 Arbitration 21.5-21.6 Claim 20 @magedkom /in/magedkom ArabPlanners @profplanner Facebook Icon - Free Download, PNG and Vector Youtube Logo Icon, Youtube Icon, Youtube Vector, Youtube PNG and ... Twitter twitter button twitter logo icon - Popular Social Media ...
  • 12. Relevant Event Relevant Matter JCT Types of Events 2.27 Notice by Contractor of delay to progress 2.28 Fixing Completion Date 1. If, .. on receiving a notice .. under clause 2.27: : .1 any of the events which are stated to be a cause of delay is a Relevant Event; and .2 completion of the Works or of any Section is likely to be delayed thereby beyond the relevant Completion Date, then, .. Architect/Contract Administrator shall give an extension of time by fixing such later date as the Completion Date for the Works or Section as he then estimates to be fair and reasonable. 2.29 Relevant Events Loss and Expense 4.20 to 4.24 4.22 Relevant Matters The following are the Relevant Matters: .1 Variations (..including any .. matters or instructions which under these Conditions are to be treated as a Variation); .2 Architect/Contract Administrator’s instructions: … .4 any impediment, prevention or default, whether by act or omission, by the Employer, the Architect/Contract Administrator, the Quantity Surveyor or any Employer’s Person,.. 4.23 Amounts ascertained – addition to Contract Sum @magedkom /in/magedkom ArabPlanners @profplanner Facebook Icon - Free Download, PNG and Vector Youtube Logo Icon, Youtube Icon, Youtube Vector, Youtube PNG and ... Twitter twitter button twitter logo icon - Popular Social Media ...
  • 13. NEC Flowchart of Compensation Events @magedkom /in/magedkom ArabPlanners @profplanner Facebook Icon - Free Download, PNG and Vector Youtube Logo Icon, Youtube Icon, Youtube Vector, Youtube PNG and ... Twitter twitter button twitter logo icon - Popular Social Media ...
  • 14. General Conditions of the Contract for Construction - Tenderers - Sections - Clauses - Employer / Client - Architect/CA / PM - Practical Completion/ Defects date - Programme - Relevant Matter / Compensation Event - Senior Rep.s / Mediation – Adjudication/DAB – Tribunal UK Forms (JCT & NEC) - Bidders - Articles - Owner - Architect - Substantial Completion/ Final Completion - Construction Schedule - Change Order - Initial Decision - Mediation – Arbitration (AAA) American Form - AIA @magedkom /in/magedkom ArabPlanners @profplanner Facebook Icon - Free Download, PNG and Vector Youtube Logo Icon, Youtube Icon, Youtube Vector, Youtube PNG and ... Twitter twitter button twitter logo icon - Popular Social Media ... NEC4 Engineering and Construction Contract (ECC) JCT- Standard Building Contract Wo Quant. (SBC/XQ)
  • 15. Two commonly occurring categories of scope changes on construction projects are either: changes directed by the owner, or changes identified by the contractor as a result of an action or inaction of the owner, also known as constructive changes (causes claims). An owner-directed change may ultimately become a constructive change (claim) if the contractor believes it will be impacted by the directed change. Change Order @magedkom /in/magedkom ArabPlanners @profplanner Facebook Icon - Free Download, PNG and Vector Youtube Logo Icon, Youtube Icon, Youtube Vector, Youtube PNG and ... Twitter twitter button twitter logo icon - Popular Social Media ...
  • 16. @magedkom /in/magedkom ArabPlanners @profplanner Facebook Icon - Free Download, PNG and Vector Youtube Logo Icon, Youtube Icon, Youtube Vector, Youtube PNG and ... Twitter twitter button twitter logo icon - Popular Social Media ... Unilateral vs Bilateral VO Procedures Unilateral VO is instructed by Employer and the Contractor must proceed as per the contract mechanism. Bilateral VOs where supplemental mutual agreements between the parties are required to increase or decrease the work agreed upon.
  • 17. @magedkom /in/magedkom ArabPlanners @profplanner Facebook Icon - Free Download, PNG and Vector Youtube Logo Icon, Youtube Icon, Youtube Vector, Youtube PNG and ... Twitter twitter button twitter logo icon - Popular Social Media ... Unilateral Example (FIDIC) 13.3 Variation Procedure … Variations shall be initiated by the Engineer …either of the following procedures: 13.3.1 Variation by Instruction … with Sub-Clause 3.5 [Engineer’s Instructions]. The Contractor shall proceed with execution of the Variation and shall within 28 days (or other period proposed by the Contractor and agreed by the Engineer) …, submit to the Engineer detailed particulars…
  • 18. @magedkom /in/magedkom ArabPlanners @profplanner Types of Changes Facebook Icon - Free Download, PNG and Vector Youtube Logo Icon, Youtube Icon, Youtube Vector, Youtube PNG and ... Twitter twitter button twitter logo icon - Popular Social Media ... Omission, Addition and Substitution FIDIC 13.1 Right to Vary Each Variation may include: (i) changes to the quantities ..; (ii) changes to the quality ..; (iii) changes to the levels, .. and/or dimensions …; (iv) ..omission .., unless it is to be carried out by others..; (v) ..additional work, …; or (vi) changes to the sequence ...
  • 19. @magedkom /in/magedkom ArabPlanners @profplanner Facebook Icon - Free Download, PNG and Vector Youtube Logo Icon, Youtube Icon, Youtube Vector, Youtube PNG and ... Twitter twitter button twitter logo icon - Popular Social Media ... Permitted Unilateral Changes Blue Circle Industries Plc v Holland Dredging Co (UK) Ltd (1987) Is it a permitted unilateral change/ omission? - B invited H to tender for dredging works at Larne Lough on the terms of the ICE conditions 5th Edition. - In discussions, it was reached to use the dredged material to form an island. - H failed to form the island properly- it merely broke the surface at low water. - B commenced proceedings claiming damages for negligence, breach of collateral warranty and misrepresentation. - The court held that the work is wholly outside the original scope (Not similar character and nature), it could not be ordered as a variation and it must be a separate agreement.
  • 20. @magedkom /in/magedkom ArabPlanners @profplanner New Rate Calculation – FIDIC Example Facebook Icon - Free Download, PNG and Vector Youtube Logo Icon, Youtube Icon, Youtube Vector, Youtube PNG and ... Twitter twitter button twitter logo icon - Popular Social Media ... Each new rate or price shall be derived from any relevant rates or prices specified in the Bill of Quantities or other Schedule, with reasonable adjustments to take account of the matters described in sub-paragraph (a), (b) and/or (c), as applicable. If no specified rates or prices are relevant for the derivation of a new rate or price, it shall be derived from the reasonable Cost of executing the work, together with the applicable percentage for profit A new rate or price shall be appropriate for an item of work if: (a) the item is not identified …, or is not executed under similar conditions, …; (b) (i) the measured quantity of the item is changed by …%; and/or (c) the work is instructed under Clause 13 [Variations and Adjustments] and sub-paragraph (a) or (b) above applies.
  • 21. Closing Note 1. Why Changes Occur in Construction 2. Other Differences in Construction Contracts 3. Change Mechanisms in Standard Forms 4. Unilateral vs Bilateral VO Procedures 5. Types of Changes 6. Permitted Unilateral Changes 7. New Rate Calculation @magedkom /in/magedkom ArabPlanners @profplanner Facebook Icon - Free Download, PNG and Vector Youtube Logo Icon, Youtube Icon, Youtube Vector, Youtube PNG and ... Twitter twitter button twitter logo icon - Popular Social Media ... Recap
  • 22. Thank You Don’t Hesitate to contact…. M.Maged Hegazy mm.hegazy@ppmconference.net mobile : 00966-580264968